Lloyds Banking Group has shed £4.1bn in UK commercial real estate loans over the nine months to the end of September, with the bank on track to complete five separate non-performing loan (NPL) portfolio sales by the end of the year.
In the third quarter, Lloyds reduced UK commercial real estate exposure by £1.6bn, following the £2.5bn which was reduced in the first half of the year – thought to be predominantly distressed loans in the bank’s Corporate Real Estate Business Support Unit (CRE BSU).
BSU, the division which manages distressed loans across Lloyds’ entire circa £50bn loan book, is comprised of the bank’s non-core real estate loans as well as core clients which have individual distressed loans.
Lloyds’ non-core real estate loan book fell by circa £2bn in the third quarter, and by a total of £4bn across the year-to-date, which takes the end of September balance to circa to circa £15bn, it was revealed this morning.
Over the seven quarters since end of 2010, Lloyds’ non-core real estate loan book has reduced by £9bn – a figure certain to rise significantly in the final quarter of this year, with both the €2.2bn Project Pittlane and the £778.6m Project Forth expected to the winning private equity suitors by the end of December.£15bn, it was revealed this morning.
In the third quarter, Lloyds closed the circa £625m Project Harrogate NPL with Oaktree Capital Management which paid £260m, reflecting a blended 58% discount, with the circa 70-strong UK loan portfolio financed by a less than 18-month approximate £130m loan provided by JPMorgan, as revealed by CoStar News.
The vast majority of Lloyds’ real estate deleveraging remains through the visible process of running down loans until maturity, restructuring debt facilities at lower loan to values and property enforcement, but in 2012 NPL portfolio sales have become an increasingly large minority of the bank’s overall deleveraging strategy.
If projects Pittlane and Forth trade by the year end, Lloyds’ aggregate global NPL sales over the 2012 calendar year will amount to a nominal reduction of £4bn in five portfolios, according to data compiled by CoStar News.
Lloyds’ three closed commercial property NPL’s this year to date are:
- Project Patterson, an Australian £809m nominally-valued NPL, which traded to Morgan Stanley Real Estate Investing and Blackstone for £388m, financed by Deutsche Bank, reflecting a 52% blended discount in June.
- Project Prince, a circa 150-loan €360m (£287.75m) nominally-valued Irish NPL, which traded to Kennedy Wilson and Deutsche Bank in cash-only for around €61.2m (£48.95m), and reflecting an assumed 83% blended discount also in June.
- Project Harrogate, Lloyds’ circa 70-strong £625m nominally-valued second UK NPL, which traded to Oaktree Capital Management for £260m, financed by a less than 18-month loan by JPMorgan, and reflecting a 58% blended discount at the end of August.
The aggregate of the two UK NPLs, the two Irish NPLs and one Australian NPL is £4.1bn, according to CoStar News’ data.
Across the three traded deals this year to date, Lloyds has disposed of Australian, Irish and UK loans with a nominal value of £1.72bn and received £696.95m net proceeds, which reflects an average 40% discount across Projects Patterson, Prince and Harrogate.
Lloyds made a statutory loss before tax of £583m in the third quarter, although the bank reported a 148% increase in underlying profit to £1.9bn.
Lloyds’ core tier 1 ratio rose to 11.5% at the end of September, above the required 9% minimum threshold which came into effect at the turn of the third quarter as decreed by the European Banking Authority.
In the bank’s results statement issued this morning, Lloyds said: “While the UK economic environment remains subdued and vulnerable to developments in the Eurozone, our economic outlook remains unchanged, with the most likely scenario being a flat economic performance in 2012, and a modest, below-trend recovery in 2013.”